The order of the Bench was delivered by
Anil Chaturvedi, Accountant Member - This appeal is filed by the Revenue against the order of the Commissioner of Income-tax (Appeals)-XIV Ahmedabad dated September 9, 2010 for the assessment year 2007-08.
The facts as culled out from the material on record are as under.
The assessee is an individual having income from salary, capital gain and interest. The assessee filed his return of income for the assessment year 2007-08 on July 30, 2007 declaring total income of Rs. 23,27,741. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated December 9, 2009 and the total income was determined at Rs. 60,15,916. Aggrieved by the order of the Assessing Officer, the assessee carried the matter before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) vide order dated September 9, 2010 granted substantial relief to the assessee. Aggrieved by the aforesaid order of the Commissioner of Income-tax (Appeals), the Revenue is now in appeal before us and has raised the following ground :
1. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in allowing the claim of long-term capital loss (LTCL) arising on sale of shares of Suvik Hitek P. Ltd., amounting to Rs. 36,13,175, claimed by the assessee.
During the course of assessment proceedings, the Assessing Officer noticed that the assessee had sold immovable property and had earned long-term capital gain of Rs. 36,13,175. The long-term capital gains earned from the sale of immovable property was set off against the long-term capital loss of Rs. 55,19,009 arising from the sale of shares of Suvik Hitek P. Ltd. the Assessing Officer was of the view that the long-term capital loss has been artificially booked by the assessee to evade the payment of tax on long-term capital gain. The reason for arriving at the aforesaid conclusion was that the assessee was a major shareholder of Suvik Hitek P. Ltd. and the other shareholders were his family members, the shares were held by the assessee for more than 10 years. The Assessing Officer also noted that net worth of Suvik Hitek P. Ltd. was zero as per the valuation report of the chartered accountant but for the purpose of valuation, the assessee has considered the valuation of shares at 40 paise per share. He also noted that the shares were purchased by the assessee himself and the intention behind the transaction was to artificially book the capital loss was an afterthought to evade the payment of tax. He thus applying the ratio laid down in the decision in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) held the long-term capital loss claimed on sale of shares to be colourable device for tax evasion. He accordingly denied the claim of long-term capital loss. Aggrieved by the order of the Assessing Officer, the assessee carried the matter before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) deleted the addition made by the Assessing Officer by holding as under :
5. I have considered the assessment order and the above submissions. It is noticed that the appellant had claimed long-term capital loss arising on sale of shares of Suvik Hitek P. Ltd. amounting to Rs. 55,19,009. It is noticed that so far the computation part of said capital loss is concerned, there is no dispute by the Assessing Officer as to quantum of shares sold and the cost of the shares. The question raised by the Assessing Officer is that according to him the shares were not transacted through any recognised stock exchange and that according to him shares were transferred to the appellant's Hindu undivided family and thus to self and that, therefore, the transaction was not considered by him to be genuine. He has further stated that there was intention of evasion of tax. He has relied upon the decision of the Supreme Court in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) and held that the transaction of sale is a colourable device for tax evasion.
5.1 The appellant on the other hand has pointed that the shares were of that of a private company and, therefore, there was no question of listing of those shares in stock exchange. It is pointed out that the shares were sold by executing transfer forms, the value was supported by the report of the Government approved valuer and that the shares were actually transferred to the transferees and further the consideration had been passed on to the appellant by banking channel from the bank account of the transferee. It is also pointed out that the shares were not transferred to self or to the Hindu undivided family of the appellant but were transferred to the Hindu undivided family of the appellant's father whose name was Suhrid Ambalal Sarabhai and that the Karta of that Hindu undivided family was the appellant's elder brother Dr. Anand Sarabhai. It is pointed out that merely because the transaction had taken effect after sale of land, it cannot be considered to be with a motive of evading tax particularly when as stated above the transaction was carried through with above supporting evidences.
5.2 On consideration of all these facts, I am of the view that the Assessing Officer was not justified in rejecting the long-term capital loss on sale of shares incurred by the appellant by relying upon the decision of McDowell and Co. Ltd.'s case [1985] 154 ITR 148 (SC). I have noticed that the shares were transferred to the Hindu undivided family of the appellant's father which is a separate legal entity and that consideration for the same was received by the appellant from the said Hindu undivided family through banking channel. It is also noticed that the shares were sold at a price which was as per report of the Government approved valuer. Considering these facts there was no reason for the Assessing Officer to state that the shares were transferred to self or that it was not genuine.
5.3 Considering the evidences the appellant has rightly stated that when the transaction had taken place between two independent entities there was no question of considering the same as Sham. The decision of the Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) wherein the question of there being a sham transaction was discussed in the following words :
5.4 In the appellant's case, considering the ratio of the above case, it cannot be held that the transaction was sham or a device to avoid tax. Merely because there is lesser payment of tax on account of any transaction, it cannot prevent the assessee from entering into such transaction particularly when the transaction is not prohibited by law. McDowell and Co. Ltd.'s case [1985] 154 ITR 148 (SC) cannot be generally applied to state that there was tax evasion and that therefore, transaction should be ignored. The assessee is free to enter into a transaction which is genuine and it cannot be done away with. This is also stated in the above case of Azadi Bachao Andolan [2003] 263 ITR 706 (SC) wherein the earlier decisions of the Supreme Court were considered along with the decision in the case of McDowell and Co. Ltd. as under :
5.5 1 have also noticed that the different decisions relied upon by the Assessing Officer are not applicable to the facts of the appellant's case as explained by the appellant. Considering the above position the disallowance of loss made by the Assessing Officer is not justified and this ground of appeal is allowed. The Assessing Officer is directed to allow the claim of long-term capital loss of Rs. 55,19,009. The relevant ground of appeal is allowed.
Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue is now in appeal before us.
Before us, the learned Departmental representative took us through the order of the Assessing Officer and pointed to the various findings of the Assessing Officer and strongly supported his order. On the other hand the learned authorised representative reiterated the submissions made before the Commissioner of Income-tax (Appeals) and supported the order of the Commissioner of Income-tax (Appeals). He also submitted that the shares were transferred by the assessee to an Hindu undivided family of the assessee's father and therefore the finding of the Assessing Officer that the shares were transferred to himself is factually wrong. He also placed reliance on the decision in the case of Asst. CIT v. Biraj Investment P. Ltd.[2014] 3 ITR-OL 157 (Guj ) and in the case of CIT v. Special Prints Ltd. [2013] 356 ITR 404 (Guj ). He also placed on record the copy of the aforesaid decisions. He thus supported the order of the Commissioner of Income-tax (Appeals).
We have heard the rival submissions and perused the material on record. The main issue in the present appeal is with respect to the loss on sale of shares of Suvik Hitek P. Ltd. It is an undisputed fact that the assessee had sold the shares of Suvik Hitech P. Ltd. which is a private limited company and is not listed on the stock exchange. The Commissioner of Income-tax (Appeals) while granting the relief has given a finding that the shares were transferred to the Hindu undivided family of the assessee's father which is a separate legal entity and the consideration of the same was received by the assessee from the said Hindu undivided family through banking channels. He has also noted that the shares were sold at a price which were on the basis of a report of the Government approved valuer. The Commissioner of Income-tax (Appeals) has further given a finding that the decision in the case of McDowell and Co. Ltd.(supra) and the other case laws were not applicable to the facts of the case. He thus relying on the decision of the hon'ble apex court in the case of Union of India v. Azadi Bachao Andolan[2003] 263 ITR 706 (SC) held that the transaction of sale of shares in the present case cannot be considered as a sham or a device to void tax. Before us, the learned Departmental representative could not controvert the findings of the Commissioner of Income-tax (Appeals) by bringing any contrary material on record. In view of the aforesaid facts, we find no reason to interfere with the order of the Commissioner of Income-tax (Appeals) and thus this ground of the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed